Bloomberg News

Goldman Said to Seize DBS Options as ‘Eji’ Balks at Margin Call

July 08, 2011

July 8 (Bloomberg) -- Goldman Sachs Group Inc. took over the portfolio of DBS Partners LP, one of the largest independent market makers for options on the Standard & Poor’s 500 Index, after that firm declined to put up more collateral, according to four people with knowledge of the transaction.

Goldman Sachs, which had served as DBS’s clearing firm, asked banks and brokerages late last week to submit offers to close out about 575,000 options that Naperville, Illinois-based DBS previously owned, said the people, who asked not to be named because the information is private. That figure equals about 4.3 percent of the 13.5 million S&P 500 contracts outstanding as of yesterday, according to data compiled by Bloomberg.

DBS co-founder Eric Wojcikiewicz, known as “Eji” among traders at the Chicago Board Options Exchange, owned contracts that would have cost about $470 million to unwind as of the end of last week, said three people familiar with the portfolio. When Goldman Sachs asked him for more collateral, he opted instead to turn over his portfolio, two of the people said.

“Eric was well-known as one of the largest players in the pit with positions bigger than some of the banks’,” said Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics. “With this guy gone from SPX, you might not see as much liquidity.”

Final Hours

Wojcikiewicz declined to comment, as did Michael DuVally, a spokesman for New York-based Goldman Sachs.

Under rules set by the U.S. Securities and Exchange Commission, clearing firms such as Goldman Sachs Execution and Clearing must determine the amount of risk that market-making clients such as DBS have taken on through their investments. They can then ask for more collateral or take a charge against their own capital to reflect that amount of risk, according to Michael Macchiaroli, an associate director in the SEC’s Division of Trading and Markets.

“If the positions go down, they take the risk,” Macchiaroli said in a telephone interview. He declined to comment on the events at Goldman Sachs and DBS.

Options are contracts granting their owners the right to buy or sell a security, a commodity or an index’s cash value at a set price.

Goldman Sachs put the contracts up for bids during the final two hours of trading last week, just before the Independence Day holiday weekend in the U.S., according to the people.

Best Offer

Banks and brokerages were seeking about $480 million, or a $10 million premium, to take on the risk of closing out the contracts. The best offer, at $457 million, came from another Goldman Sachs unit, according to the people, meaning the bank worked out at least part of the portfolio in-house.

When a clearing firm takes over a client portfolio and then passes it along to an affiliate, the company must follow CBOE rules for such transactions, known as position transfers, according to Gail Osten, a spokeswoman for the exchange. She declined to comment on the DBS transaction.

CBOE Holdings Inc., owner of the oldest U.S. options market, has the exclusive right to trade options on the benchmark for American equities. S&P 500 options were the third most-traded U.S. contracts last year, according to data from Chicago-based Options Clearing Corp., which clears and settles all U.S. option trades on exchanges.

Four Friends

DBS Partners was formed in March 1992 by four friends who had attended the University of Pennsylvania, according to a brokerage report that the firm filed with the SEC and a person familiar with the firm. In addition to Wojcikiewicz, they included Daniel Kerrane, Eric Bryant, and Kenneth Alpart.

After attending Penn, located in Philadelphia, all four went to work for Cooper Neff & Associates, this person said. Cooper Neff, a Philadelphia-based options trading firm, agreed to be acquired in 1994 by Banque Nationale De Paris, according to Roy Neff, one of the founders.

“I remember him as a smart guy,” Neff said of Wojcikiewicz in a telephone interview. “He was a physics person and he added a lot to our mathematical modeling.”

Kerrane died from cancer in 2002 at the age of 37, according to an obituary published that November in the Chicago Tribune and the person familiar with the firm. The two other partners went to work elsewhere after DBS was formed, leaving Wojcikiewicz as the firm’s last remaining principal.

Floor Trader

During the 1990s, Wojcikiewicz worked on the floor of the CBOE, where his identification tag had the initials EJI, the people said. He later began making markets from an office in Naperville, where his home is located.

DBS had derivative contracts with a market value of $753.4 million listed as assets on its balance sheet as of Dec. 31, 2001, the only year that it filed a brokerage report with the SEC. Its liabilities included $708.6 million of derivative contracts listed as financial instruments sold, not yet purchased. Partners’ capital totaled $19.3 million.

“As a market maker and trader on various national financial exchanges, the partnership is, in fact, in the business of managing market risk,” DBS Partners said in the SEC filing. “The partnership employs hedged, market-neutral trading strategies and thus, in management’s opinion, market risk is substantially diminished when all financial instruments are aggregated.”

--With assistance from Cecile Vannucci in New York, Christian Baumgaertel in Boston and Kevin Miller in Chicago. Editors: Christian Baumgaertel, Josh Friedman

To contact the reporters on this story: Miles Weiss in Washington at; Jeff Kearns in New York at

To contact the editors responsible for this story: Christian Baumgaertel at; Nick Baker at

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